Amended Complaint Allowed Against Conservation Easement Promoters

UNITED STATES OF AMERICA,
Plaintiff,
v.
NANCY ZAK, et.al.,
Defendants

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

ORDER

This matter is before the Court on the Government's Motion to Amend Complaint [Doc. 174] and Motion for Relief from Discovery Orders [Doc. 175]. The Motion for Relief from Discovery Orders has been rendered moot by the Court's Order adoption of the Special Master's Report and Recommendation and related Discovery and Scheduling Plan. (Doc. 213.) Accordingly, that Motion is DENIED as MOOT. [Doc. 175.] The Government's Motion to Amend Complaint is GRANTED for the following reasons. [Doc. 174.]

I. Background and Procedural History

On December 10, 2019, this Court granted without prejudice Defendant Zak's Motion to Dismiss as to Count II of the Complaint, but denied that motion as to Counts I, IV, and V of the Complaint. (Order, Doc. 119.) In the same Order, the Court denied entirely Defendant Clark's Motion to Dismiss. (Id.) In the Conclusion of that Order, the Court also restricted the Government's scope of discovery to the eight States that were specifically named within the Complaint (Alabama, Georgia, Indiana, Kentucky, North Carolina, South Carolina, Tennessee, and Texas). (Order, Doc. 119 at 20-21.)

After the Court issued this Order, Defendant Zak filed her Answer (Doc. 124), Defendant Clark filed his Answer and asserted a Counterclaim (Doc. 123¹), and the Parties filed their Joint Proposed Amended Scheduling Order (Doc. 128). The Proposed Amended Scheduling Order made plain to the Court both how challenging discovery likely might be in this case, and also just how far apart the Parties were in their expectations of discovery. While the Court was weighing how to proceed with the Parties' differing proposed Scheduling Orders, the Government filed a Motion to Amend the Complaint (Doc. 174), claiming inter alia that the Amended Complaint included new allegations which showed the “the promotion of this scheme is even more widespread (i.e., 37 broker-dealers and over 185 frontline sellers located in at least 33 different states) than previously alleged.” (Doc. 174 at 2.) On account of these expanded allegations, the Government also filed its Motion for Relief from Discovery Orders, seeking greater geographical freedom and an increase in the number of allowed depositions and subpoenas. (Doc. 175.) As mentioned above, on October 30, 2020, the Court adopted the Special Master's R&R and the related Discovery and Case Management Plan. (Order, Doc. 223.) As the Court fully considered the discovery issues raised by the Amended Complaint in adopting the Discovery and Case Management Plan, the Defendant's Motion for Relief [Doc. 175] is DENIED as moot.

II. Standard of Review

Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend its pleading (A) once as a matter of course within 21 days after serving it, or (B) 21 days after service of a motion or responsive pleading. Fed. R. Civ. P. 15(a)(1). If a party seeks to amend its pleading outside these time limits, it may do so only by leave of court or by written consent of the adverse party. Fed. R. Civ. P. 15(a)(2). “The court should freely give leave when justice so requires.” Id.; accord Foman v. Davis, 371 U.S. 178, 182 (1962); Shipner v. E. Air Lines, Inc., 868 F.2d 401, 406-407 (11th Cir. 1989) (“Rule 15(a) severely restricts the district court's freedom, directing that leave to amend shall be freely given when justice so requires.”). Rule 15(a)'s liberal policy of “permitting amendments to facilitate determination of claims on the merits circumscribes the exercise of the district court's discretion; thus, unless a substantial reason exists to deny leave to amend, the discretion of the district court is not broad enough to permit denial.” Id. at 407. The Court should therefore deny leave to amend only where the amendment will result in undue delay, bad faith, undue prejudice, a repeated failure to cure deficiencies by amendments previously allowed, or futility. Foman, 371 U.S. at 182; Hall v. United Ins. Co. of Am., 367 F.3d 1255, 1263 (11th Cir. 2004) (“[D]enial of leave to amend is justified by futility when the complaint as amended is still subject to dismissal.”) (quoting Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir. 1999)); cf. Bryant v. Dupree, 252 F.3d 1161, 1163-64 (11th Cir. 2001) (reversing district court's decision to deny leave to amend a complaint because there was no evidence of prejudice to the defendant).

A complaint is futile, inter alia, if it would be subject to dismissal for failing to state a claim for which relief can be provided. See Corsello v. Lincare, Inc., 428 F.3d 1008, 1015 (11th Cir. 2005) (affirming district court's denial of leave to amend a qui tam relator's FCA complaint because proposed amendments “failed to plead specific instances of fraudulent submissions to the government”); see also Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1255 (11th Cir. 2008) (“Because justice does not require district courts to waste their time on hopeless cases, leave may be denied if a proposed amendment . . . fails to state a claim.”); Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (“Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”). Iqbal requires more than facts that are “merely consistent with a defendant's liability” to achieve plausibility. Id. at 678 (internal quotations omitted).

Finally, the Court may decline leave to amend based on matters complained of by Defendant or based on issues identified sua sponte. See United States ex rel. Brunson v. Narrows Health and Wellness, LLC, 469 F. Supp. 2d 1054, 1055 (N.D. Ala. 2007) (stating that the court “without defendant's help, finds several good reasons why plaintiffs' motion [to amend] should be denied,” including undue, unexplained delay, prejudice to the defendant, and lack of particularity). Whether to permit amendment is a legal determination for the Court, subject to de novo appellate review. Mizzaro, 544 F.3d at 1236.

III. Discussion

The Government acknowledges that the purpose of their amendment is not to alter their theory of the case or add defendants, but rather “to amplify or enhance [the] allegations in the original complaint.” (Motion to Amend, Doc. 174 at 3.) Doing so, the Government says, would “serve the interests of justice” and “assist all parties and the Court in understanding the factual basis for the United States' claims.” (Id. at 3, 5.) The proposed amendment would identify a total of 138 conservation easement transactions (42 more than the original complaint), and identify property in a total of 11 specifically named states (up from eight in the original complaint). (Id. at 4.) The proposed amendment also adds additional detail about the Government's theory of how the Defendants allegedly brokered the conservation easement deals, including the average fees charged by the various Defendants for their respective roles in the process. (Id. at 4-5.)

The Defendants oppose the amendment, characterizing it as “add[ing] 26 new pages of surplusage, the substance of which is already fairly encompassed in Plaintiff's original 80-page-long Complaint filed a year-and-a-half ago[.]” (Response, Doc. 179 at 1.) The Defendants accurately note that the amendment does not add any parties, name any new causes of action, or seek any new relief. (Id. at 1-2.) The Defendants say that the amendment creates a costly burden for them, as they will have to expend time and money formulating an answer to the new portions of the Amended Complaint. (Id.) The Defendants request in the alternative that, if the Court does allow the amendment, then the Court should also “(1) prohibit additional amended complaints, and (2) defer the start of the time period for Defendants to file amended answers until the Court has addressed the proportionality and manageability of this case, and has entered a case management order.” (Doc. 179 at 7.)

The Court understands the Defendants' concerns with having to consider and issue new answers in a case that is slogging towards its second anniversary with no real indication of an acceleration in action to come. However, the Court recently adopted the Special Master's R&R, setting the parameters for the discovery period of the case in motion, and — hopefully — moving things along towards whatever resolution may be had. (See Order, Doc. 223.) Accordingly, the Defendants' concerns that the Government's proposed complaint amendment was actually a strategy for fortifying its effort to expand their scope of discovery have been suitably addressed. Similarly, while the Court can understand why the Defendants seek to avoid the time and cost of having to issue new answers, this is not on its own adequate reason to reject a proposed amendment such as this one, which does indeed provide greater clarity about what exactly the Government alleges the Defendants did, how they did it, and when they did it. Morrison v. Ocwen Loan Servicing, LLC, No. 1:18-CV-1707-AT, 2019 WL 2323589, at *2 (N.D. Ga. Mar. 8, 2019) (finding that the expenditure of additional time and resources “is insufficient to overcome Rule 15's mandate that leave to amend should be freely granted when justice so requires.”) If anything, the Court expects that these additional details may enable the parties to sharpen the focus of their discovery efforts.

The Amended Complaint will not result in undue delay, because the Court has already set the Parties on a course for discovery through its adoption of the Special Master's recommended Discovery and Case Management Plan. There is no evidence that the amendments are made in bad faith. Furthermore, although the amendment will create a new task for the Defendants — supplementing their answers — this burden is not so great as to give the Court a reason to deny the Government's motion to amend. Although the Amended Complaint neither adds new parties nor claims, it is not futile because it does provide greater detail and information as to the Government's particular allegations. For these reasons, the Motion to Amend Complaint [Doc. 174] is GRANTED.

In its Reply, the Government offers to alleviate some of the Defendants' headache by providing a red-lined version of the Amended Complaint, so that the Defendants may issue supplemental answers only as needed. (Reply, Doc. 182 at 2.) The Court thinks this is a helpful offer, and DIRECTS the Government to provide the Defendants with a red-lined version of the Amended Complaint that clearly indicates which portions are new or modified and any deletions of language contained in the original Complaint. The redlined version should be filed with the Court no later than November 9, 2020 and transmitted as well electronically to Plaintiffs' counsel on that date. The Defendants shall then file Amended Answers to the Amended Complaint with the benefit of the redlined version and as appropriate, also cut and paste the language of their prior Answers into their respective Amended Answers.² The Government shall not be authorized to seek any further amendments of the Amended Complaint authorized by this Order. Defendants are granted 20 extra days to file an Amended Answer beyond the 21 days authorized by Rule 12(B) of the Federal Rules of Civil Procedure.

IV. Conclusion

The Plaintiff's Motion to Amend Complaint [Doc. 174] is GRANTED.

The Motion for Relief from Discovery Orders [Doc. 175] is DENIED.

The Government is DIRECTED to file by November 9, 2020 and also electronically provide to the Defendants, a red-lined version of the Amended Complaint to facilitate the Defendants' filing of Supplemental Answers.

The Plaintiff is not authorized to seek any further amendments of the Amended Complaint.

Defendants' time for filing their respective Amended Answers to the Complaints, shall be extended by 20 days beyond the 21-day period allocated under Federal Rule of Civil Procedure 12(B). Defendants' respective Amended Answers shall be prepared consistent with the instructions provided herein.

IT IS SO ORDERED this 4th day of November, 2020.

Amy Totenberg
United States District Judge